The sector is falling, rupee is rising, wages are going up, taxes are just 2 years away, US is getting into a recession and EU might just follow. The list is endless, but point is: What an investor should do now?

All those guys who had bought IT stocks at the higher levels with the expectations that it will further go up, are probably wondering what to do now. Can things go bad from the current status? Probably yes. How much more? We don’t know.

All the fund managers and analysts are saying that IT is a contrarian call at the current levels. We tried to do some digging around the statement and the results were quite interesting. The delivery based volume on NSE in TCS and INFY has gone up substantially in last 1 year. The chart below (Blue – TCS, Purple – INFY) goes on to show that delivery %, which used to move between band of 50%-60% in 2006, has now been moving in the range of 60%-70% in 2007.

With relatively stable total quantity traded, increase in the % of delivery proves that the traders and punters are not playing, and only people with serious money are involved right now.

Lets talk a bit about fundamentals – Bloomberg consensus estimates shows an INFY EPS of Rs.108.86 for FY10 assuming the tax rate of 25%. Let’s make the tax rate 35% then our EPS is Rs.88. So the PE is 16.8 FY10. Is that expensive? Kindly note that this PE is less than 1 PEG. If INFY, TCS, Wipro, Satyam, HCL can sustain a +20% EPS growth rate, then these stocks are trading at a steal. So can we buy now?

As wise people say, that it is always the darkest before the dawn. Whether it is 3 am or 3.30 am before the sunrise of 5 am, we don’t have an answer. So if the pain is endurable, then let’s jump.